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Keywords:

  • sunk costs;
  • heuristics and biases;
  • time;
  • money;
  • social relationships

ABSTRACT

In three studies, we examined the influence of restricted and expansive temporal horizons on the sunk-cost fallacy. The sunk-cost fallacy occurs when prior investments instead of future returns influence decisions about future investments. When making decisions about future investments, rational decision makers base decisions on future consequences, not already-invested costs that are “sunk” and cannot be recovered. In Study 1, we restricted young adult college students' temporal horizons by instructing them to imagine that they did not have much longer to live; this manipulation decreased the sunk-cost fallacy. In Study 2, we replicated Study 1 and also found that the consequences of manipulating temporal horizons were most pronounced for prior investments of time and that prior investments of time and money had different implications for the sunk-cost fallacy, depending on the social or nonsocial decision domain. In Study 3, we manipulated temporal horizons by instructing students to imagine their time as a college student was coming to an end. Results were mostly similar to Study 2 but also suggested that focusing on one's mortality may have unique consequences. Implications of the three studies for understanding age differences in sunk-cost decisions, interventions to improve sunk-cost decisions, and the situations in which interventions might be most needed are discussed. Copyright © 2013 John Wiley & Sons, Ltd.